The Net Unrealized Appreciation election on your CSC stock fund, now held as DXC Technology shares inside the DXC Technology Matched Asset Plan, can move decades of stock growth out of ordinary income tax rates and into long-term capital gains rates. Done right, it can cut the tax on your appreciation from as much as 37% to somewhere between 0% and 20%. Done wrong, the benefit disappears with no way to recover it.
What You Actually Hold Now
The CSC Stock Fund held Computer Sciences Corporation common stock accumulated through company matches and direct purchases. In April 2017, Hewlett Packard Enterprise completed the spin-off and merger of its Enterprise Services business with CSC to form DXC Technology.1Hewlett Packard Enterprise. Hewlett Packard Enterprise Completes Spin-off and Merger of its Enterprise Services Business with CSC Every CSC share in employee retirement accounts converted to DXC common stock, and the plan was renamed the DXC Technology Matched Asset Plan.2U.S. Securities and Exchange Commission. DXC Technology Matched Asset Plan
Your cost basis history carried through that conversion. Shares bought over many years at CSC’s older prices now sit at DXC’s current market value, and the spread between those two numbers is what makes the NUA election worth pursuing. Ask your plan administrator for the cost basis on your stock fund holdings early, because every calculation that follows depends on that figure.
How the Tax Break Works
NUA is the difference between what the plan originally paid for your employer stock and what those shares are worth on the day they leave the plan. Normally, everything pulled from a traditional 401(k) is taxed as ordinary income. The tax code carves out an exception for employer securities: only the cost basis is taxed as ordinary income in the year of distribution, and the appreciation stays untaxed until you sell the shares from your brokerage account.3Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
When you sell, the NUA portion qualifies for long-term capital gains treatment regardless of how long you actually held the shares after distribution. Long-term capital gains rates for 2026 are 0%, 15%, or 20% depending on taxable income.4Internal Revenue Service. Topic No. 409 Capital Gains and Losses Ordinary income rates for 2026 top out at 37%.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Any growth after the shares reach your brokerage account follows normal capital gains rules: short-term if you sell within a year of distribution, long-term after.
A Sample Calculation
Suppose your DXC stock has a $40,000 cost basis and a $200,000 market value. Roll everything into an IRA and the full $200,000 is taxed as ordinary income as you withdraw it. Use NUA and you pay ordinary income tax on the $40,000 basis in the distribution year, then long-term capital gains tax on the $160,000 of appreciation when you sell. At a 15% capital gains rate, that appreciation costs $24,000. At a 37% ordinary rate, the same $160,000 would cost $59,200. NUA saves $35,200 in that scenario.
What Has to Be True to Qualify
The rules are strict, and missing any single one wipes out the election.
You need a qualifying triggering event. The tax code recognizes four:3Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
- Separation from service (retirement, resignation, or termination), for common-law employees only.
- Reaching age 59½, which allows the election even while still employed.
- Death, in which case beneficiaries can execute the election.
- Total and permanent disability.
The distribution must be a lump-sum distribution, meaning your entire balance in all of the employer’s qualified plans of the same type empties within a single tax year.6Internal Revenue Service. Topic No. 412, Lump-Sum Distributions Not just the stock fund. Not just the 401(k). The IRS aggregates plans of the same kind, so if a separate profit-sharing plan exists, that balance may also need to move.
The stock must be distributed in-kind. The actual DXC shares transfer to your taxable brokerage account. Selling inside the plan and taking cash disqualifies the election.
The Mistake That Ends the Election Permanently
Once a triggering event happens, the first distribution you take from the plan after that event sets the clock. That calendar year becomes your NUA distribution year, and if the account isn’t fully empty by December 31, the lump-sum test fails and NUA is gone until a new triggering event occurs.
A common way this goes wrong: you retire in June, take a small withdrawal in August to cover expenses, and don’t complete the full distribution before year-end. The August withdrawal locked in that year as your distribution year, and the rest of the balance sitting in the plan on January 1 breaks the election. A required minimum distribution taken after retirement creates the same trap. The RMD itself counts toward the year’s distributions, but if everything else doesn’t leave the plan by year-end, the lump-sum requirement fails.
Plan the entire sequence with your administrator before any money moves. The safe path is no partial withdrawals between the triggering event and the full distribution, with everything completed inside one calendar year.
Executing the Distribution
A proper NUA distribution splits the plan balance into two streams inside the same tax year. The DXC shares transfer in-kind to a taxable brokerage account. Everything else in the plan — mutual funds, stable value, cash — rolls to a traditional IRA to keep its tax-deferred status.3Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
Do not let the DXC shares go into an IRA. The moment they enter one, the NUA benefit dies. Every dollar later withdrawn, including all appreciation, becomes ordinary income.
Coordinate directly with the plan administrator. They handle the in-kind stock transfer, liquidate non-stock holdings as needed for the IRA rollover, and issue a Form 1099-R at year-end. The NUA amount is reported in Box 6, separate from the taxable cost basis. The cost basis appears in the taxable amount, while the NUA is included in Box 1 but excluded from Box 2a.7Internal Revenue Service. Instructions for Forms 1099-R and 5498 Keep that 1099-R permanently. You’ll need it whenever you sell the shares to prove the NUA treatment.
Once the shares arrive at your brokerage, confirm the cost basis was recorded correctly. Brokerage firms don’t always receive accurate basis information from plan administrators during in-kind transfers, and fixing it later is harder than checking it now.
Age 55, Age 59½, and the 10% Penalty
Taking the NUA distribution before age 59½ exposes the cost basis portion to the 10% early withdrawal penalty.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The NUA portion itself is not, because it’s excluded from gross income at distribution and the 10% penalty only applies to amounts included in taxable income.3Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
If you separate from service during or after the year you turn 55, distributions from that employer’s plan escape the 10% penalty entirely, including the cost basis portion of an NUA distribution.9Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts This “Rule of 55” applies only to the plan of the employer you’re leaving, not to IRAs and not to plans from earlier employers. Money rolled from the DXC plan into an IRA loses this protection, so if you’re between 55 and 59½ and might need to tap the non-stock portion soon, factor that in before rolling.
When NUA Is the Wrong Move
NUA isn’t automatically better. The math depends on how much of the stock’s value is appreciation versus cost basis, and on your tax bracket in the year of distribution.
If cost basis is high relative to market value, the NUA benefit shrinks. You’d recognize a large amount as ordinary income now for a small capital gains savings later. A straight IRA rollover with withdrawals spread over many years can produce a lower total tax bill in that situation.
Bracket creep is the other risk. Recognizing the full cost basis in one year can push you into a higher bracket for that year. Someone normally in the 12% or 22% bracket who lands in the 32% bracket because of the basis recognition has accelerated a lot of income into an expensive year. A rough guideline: if the NUA is less than half the stock’s total value, model both paths carefully before committing.
Timing the Distribution Year
The year you execute matters. The cost basis hits your return as ordinary income, so pick a year when other income is low. For most retirees, the first full calendar year after leaving work is the best candidate — salary has stopped, and Social Security and RMDs haven’t started yet.
If you’re still working and planning to use the age 59½ trigger, remember your salary stacks on top of the cost basis. That combination can push the whole amount into upper brackets and erode the advantage.
Set up the brokerage account and coordinate with the plan administrator months ahead. Some administrators process in-kind transfers slowly, and a December distribution that slips into January splits the lump sum across two tax years and disqualifies the election. Leave a cushion.
What Happens to NUA Stock at Death
If you use the election and still hold the DXC shares in a taxable brokerage account when you die, your heirs inherit the stock, but the NUA portion does not get a stepped-up basis. Beneficiaries will still owe long-term capital gains tax on that NUA amount when they sell. Post-distribution appreciation, however, does receive a step-up, so growth that occurred after the shares reached your brokerage account passes to heirs tax-free at your death.
This split treatment can cut against the NUA strategy if leaving wealth to heirs is a priority and your time horizon is long. Rolling the stock into an IRA and letting heirs handle ordinary income on inherited IRA distributions, which most non-spouse beneficiaries can spread over 10 years under current rules, may produce a better family outcome in some cases. The right answer depends on the size of the NUA, your heirs’ tax brackets, and how long you expect to hold the stock.